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Latin American lessons for SA start-up culture

Sep 03, 2015
 A view of Santiago from San Cristobal Hill. AAP image

A view of Santiago from San Cristobal Hill. AAP image

Start-Up Chile is a highly successful economic development program aimed at encouraging entrepreneurship and innovation in Chile. It began in 2010 when it brought 22 startups from 14 different countries to Chile. It is now in its fifth year with 1000 startups from more than 60 countries having been admitted to the program out of more than 12,000 applications.

The scheme’s objective is to turn Chile into the innovation and entrepreneurship hub of Latin America by attracting the world’s best and brightest start-ups to try their luck in Santiago, Chile’s capital. While more than 130 overseas companies have chosen to stay, attracting foreign startups to locate permanently in Santiago has not been the main objective.

The main objective of Start-Up Chile has been to use the foreign startups to transform Chile’s entrepreneurial culture by encouraging risk-taking, forming mutual support networks and building global connections.

One of the attractions for the overseas startups is that Santiago is a beautiful city, housing is relatively cheap and crime is very low. Ring any bells, Adelaide?

Start-Up Chile gives the selected startups US$40,000 (equity free) together with a temporary one-year visa to come to Chile to develop their projects for six months. They also receive mentoring, office space and access to social and capital networks, including international networks. They are expected to organise and actively participate in networking events and other activities that foster local entrepreneurship and startups.

This so-called acceleration activity is based around “platoons” of 8-10 startups that meet on a weekly basis, providing peer feedback. Mentoring included support from international companies like Google, Amazon, Microsoft, PayPal, Softlayer, Rackspace, oDesk, HubSpot, and others. The startups also receive “pitch” training, i.e. how to make convincing cases for funding to venture capitalists and other potential investors.

Farmers pick grapes in a vineyard on the outskirts of Santiago. AFP image

Farmers pick grapes in a vineyard on the outskirts of Santiago. AFP image

Chile has spent less than $70 million (Australian) on the program so far – less than $15 million per annum. This is an amazingly good deal. In 2012, The Economist called Start-Up Chile “Chilecon Valley”.

So successful has Start-Up Chile been, that Chile has now followed up with a Scale Fund that offers US$100,000 to particularly successful startups that need extra capital to grow in Chile. Recipients of these grants must put up US$30,000 themselves. The companies are required to stay an additional year after their first six months of Start-Up Chile.

Through Aainaa Rahman at Majoran co-working space in Adelaide, I was able to contact a South Australian, David Truong, who was selected into the fifth batch of participants in Start-Up Chile in 2012. David told me that his experience in Start-Up Chile had been very worthwhile “on many vectors” – business (R&D, marketing and “extending runway”), social (meeting like-minded people) and personal.

David grew up in Adelaide but moved to Melbourne as part of the AngelCube accelerator. At that time, there were no accelerators in South Australia and not much support. That has changed a lot, now, David says, with more local support from both government and the private sector, experienced entrepreneurs and a “budding ecosystem”. The Melbourne and Sydney scenes are much more “mature” than Adelaide’s and Santiago’s, however.

David says that it is hard to compare the Adelaide scene with Santiago’s, because the cultures and environment are very different. Santiago’s approach was “top-down” with much support coming from the government. Adelaide’s started as a grassroots movement, but has since become more “top-down” and government supported.

David thinks that Chile has got more out of Start-Up Chile as it has developed, with an increasing emphasis in the program on giving value back to the community. (David ran a startup weekend and some other events in Santiago, for example.)

Since Santiago, David has continued to travel, investigating the startup scenes in Silicon Valley, London and Berlin, noting that each has its unique perspectives and advantages and disadvantages. He plans to return to Australia in due course, but worries that Australian cities do not have the startup ecosystems of other cities he has been to. However, he does believe that things are improving here “quickly”.

In his opinion, the good things about the Adelaide startup scene are that there is “lots of grassroots activity, lots of budding entrepreneurs experimenting and trying things out, and lots of new support structures for startups and entrepreneurs”. The bad things are that there are “a limited number of people with the relevant experience building scalable, software-based, startups, together with the tall poppy syndrome and fear of failure still being prevalent”.

Why not put together a Start-Up Adelaide program along the lines of Start-Up Chile? To do this would require allowing entrepreneurs establishing qualifying startups in Adelaide to have temporary 1 year visas, as they do in Chile. This would not be allowed at present, as provisional business visas are available only for established foreign business people wanting to start a business in Australia. In fact, every visa category that allows Australian employment to increase should be expanded and not regarded simplistically as keeping Australians out of jobs.

The size of this program should be determined by the quality of the applications and confined to individuals willing to establish a startup in Adelaide within six months. The successful applicants would be awarded South Australian government support similar to the Chilean program, and would be required to interact with the startup community in South Australia as happens in Chile.

Judging by Chile’s experience, a Start-Up Adelaide program involving 100 startups selected every six months could be run by the Department of State Development for less than $20 million p.a. (which would be a sizeable increase in the economic development component of the Department’s overall budget of more than $700 million).

Inexpensive spaces could be found for the startups by using empty shop fronts, empty offices and empty buildings in Adelaide CBD. This might require some changes in regulations covering building renovations. The program should, of course, be funded by cutting back on South Australian government expenditures with low benefit/cost ratios.

Richard Blandy is an Adjunct Professor in the Business School at the University of South Australia.

This article draws on Vivek Wadhwa, “Chile teaches the world a lesson about innovation”, The Washington Post, 11 June 2014; “The lure of Chilecon Valley”, The Economist, 13 October 2012; “Start-Up Chile”, Wikipedia and www.startupchile.org.

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